Transfer of Undertakings in Egypt

Mar 23 2015

1. Employees’ Rights

There are no transfer regulations applicable in Egypt similar to the European Acquired Rights Directive. In addition, employment contracts cannot be automatically transferrable between employers by contractual agreement. This conclusion remains the same even if both employers belong to the same group of companies.

Article 9 of the Labour Law guarantees that the employees’ contracts continue and the employees’ rights are preserved in case of sale, lease or assignment of business. It states that the transfer of the ownership of “an establishment” (essentially a line of business) does not terminate the employment contract of the employees in such business. Article 9 also states that the new owner of the line of business will be jointly liable with the old owner in fulfilling all the obligations arising under the employment contracts (which have been completely created during the period preceding the transfer).

For those employees who object to the transfer, the transferring employer will not be able to force their transfer to the receiving entity. Accordingly, the two possible options are as follows:

such employees will remain employed by the transferring entity, which may be commercially unacceptable if the relevant business unit will effectively be taken-over by the receiving entity; or

the transferring entity will have to terminate such employees’ current employment.

2. Requirements for Predecessor and Successor Parties

There are three possible options to transfer the relevant employees from one entity to another as follows:

Sale of business as per Article 9 of the Labour Law, which states that the transfer of the ownership of “an establishment” (essentially a line of business) does not terminate the employment contract of the employees in such business. In practice, the Social Solidarity Authority does not transfer the social insurance files of the employees except after such employees sign a termination of employment form (“Form 6”), which the employees are usually reluctant to do.

Concluding a collective labour agreement between the transferring entity, the receiving entity, the employees, and the union or professional syndicate to which the employees belong, under the supervision of the Ministry of Manpower to cover the details of the transfer of employees as per Article 9 of the Labour Law and preserve their benefits and job levels. The Ministry of Manpower may be able to assist in transferring the employees’ social insurance files.

Transfer through consensual termination/rehire method whereby the employees will resign from their respective posts at the transferring company and sign new employment contracts with the receiving company. Under this option, the transferring entity may offer a settlement to the employees who shall resign and sign Form 6 in front of the Social Insurance Authority. Alternatively, it may offer side letters to the employees acknowledging their seniority, years of service and accrued rights under the old contract, undertaking to take such rights forward to the new employment relationship with the receiving entity. After the employment of the employees is completely terminated with the transferring entity, the receiving entity will hire the employees under new employment contracts.